Cable rates draw Congressional ire

May 9, 2003

The cable television industry is taking heat from members of Congress for repeated rate increases and a channel bundling system that critics say forces subscribers to pay for channels they don’t watch.

Sen. John McCain, (R-Ariz.) chairman of the Senate Commerce, Science and Transportation Committee Chairman, noted during a hearing on cable TV in Washington, D.C. last week that the higher prices have followed mergers that concentrated ownership of cable outlets.

“I do not subscribe to the notion that big is always bad in the corporate environment,” McCain said. “But along the way to significant consolidation in the cable industry, we have seen a pattern of annual rate increases imposed on consumers that greatly outpace inflation.”

The Washington Post reported that since 1996, when Congress voted to deregulate the industry, the average monthly cable bill has risen 50 percent—more than three times the rate of inflation.

Last week’s hearing came only three weeks away from the FCC’s self-imposed deadline on June 2 to rewrite the rules of media ownership and allow even greater consolidation of media outlets.

In addition to the steep rate hikes, several senators said that cable subscribers should only have to pay for channels they choose to watch. Sen. Ron Wyden (D-Ore.) compared the cable subscriber’s problem with channel bundling to a hungry person who accidentally stumbles into an expensive restaurant. “Consumers want a modest meal at a modest price and they end up being force-fed a five-course meal,” Wyden said.

The cable industry has argued that most of its customers receive more channels for their money than they did in the past, giving them more value for their dollar. And, besides, the industry contends that packaging channels allows many smaller niche channels to survive—a situation that would not be true if the channel had to make it alone.

However, Cox Communications CEO James O. Robbins said cable companies could charge a la carte for programming that costs more than $1 per subscriber a month. Those pricier offerings, he suggested, could be placed on a separate, optional tier for consumers to pick and choose from.

On the issue of sports impacting cable rates, Robbins blamed star athletes like Texas Rangers shortstop Alex Rodriguez, who “signs a baseball contract for $25 million a year, (and) the team and league hike their TV broadcast-rights fees.”

ESPN and ABC Sports, angered at having sports and premium channels targeted for blame, issued a sharp response from its president, George Bodenheimer. “Ripping ESPN and other popular networks out of basic cable and charging more for them is not pro consumer. This would produce a firestorm of protest from cable subscribers. With cable at $40 and the net cost of ESPN at about $1, there is no basis to take that step.”

Bodenheimer said the reality of cable economics is that programming costs are not the most significant factor in driving retail rates. Cable retail rate increases, he said, go well beyond covering the incremental cost of programming each year. “Retail rate adjustments are also covering debt service, paying for acquisitions and recouping infrastructure investment.”

Perhaps some of ESPN’s sensitivity came because the Walt Disney Co.-owned sports network announced last week that it would seek a 20 percent increase in the fee it charges cable operators, the latest of several similar increases over the past five years. The Washington Post said the network is believed to be the only broadly distributed channel that charges more than $1 a month.

Cablevision CEO Chuck Dolan suggested that Congress examine the ability of the broadcast networks to “abuse” the retransmission-consent process by forcing cable operators to carry their company-owned cable channels on the expanded-basic tier. He also called on the FCC to retain the 35 percent ownership cap during upcoming rules changes.

McCain, moving beyond the industry's excuses, said cable operators do not face enough competition. He released a General Accounting Office (GAO) report showing that, in markets where cable companies compete with one another, monthly rates are 17 percent below the national average. That, however, is in a minority of markets. Less than five percent of the more than 70 million cable consumers have a choice of providers.